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This Long-Term Trend Makes Facebook an Awesome Buy

As advertisers look to deploy their budgets, Facebook is winning a larger share thanks to this trend.

If you want your marketing message to reach a broad audience, there used to be no better option than national television commercials. But the growth of digital platforms like Facebook(NASDAQ:FB) and Alphabet's (NASDAQ:GOOG)(NASDAQ:GOOGL) Google make it easy to reach hundreds of millions of people. What's more, you can target your message so it only reaches the most qualified potential buyers.

That's why digital has been eating into television ad budgets -- and why analysts expect that trend to continue for the foreseeable future. eMarketer forecasts that digital advertising spend in the U.S. will climb to $113 billion by 2020, while TV ad spend grows much more slowly, reaching just $77 billion. Digital spend just surpassed television last year.

One of the biggest beneficiaries of the shift of ad budgets from television to digital is Facebook.

Image source: Facebook.

A Super Bowl every day

Facebook COO Sheryl Sandberg once likened Facebook's reach to the largest television event. "We have a Super Bowl on mobile every day," she said.

And it's true. Facebook has 1.23 billion daily active users -- 1.14 billion on mobile and 180 million in the U.S. and Canada. The Super Bowl earlier this year attracted 111.3 million viewers in the U.S.

Granted the Super Bowl lasts something like five hours (more if Tom Brady sends it into overtime). The average Facebook user spends "just" 50 minutes per day across Facebook, Instagram, and Messenger, the last of which doesn't yet show ads.

However, the average American watches less television today than they did a few years ago. View time across all age groups fell 11% in the six years ending last fall. The trend is more pronounced among younger people. People between 18 and 24 spent 35% less time watching traditional television during the second quarter last year compared to the second quarter of 2010, according to Nielsen.

While Facebook isn't the only reason people are watching less TV, it presents a very good option for advertisers looking to replace that lost watch time.

Facebook is taking a huge share of digital advertising growth

Digital advertising is growing rapidly, but that doesn't mean all of that ad spend will go to Facebook. Nonetheless, Facebook has done an excellent job winning those new ad dollars flowing from television ad budgets to digital.

In the third quarter last year, Facebook took 45% of all digital advertising growth. Google managed to take 54% of advertising growth, leaving just 1% of growth for everyone else.

Facebook is poised to continue capturing a lion's share of digital ad spend growth in the future, too. Display advertising is the largest form of digital advertising today, and eMarketer expects that to remain the case in the future. Facebook holds a wide lead in display advertising, bringing in around $12 billion in the U.S. last year compared to less than $5 billion for Google.

Facebook is also working to attract more video content to its platform, which fits nicely with the trend of shifting ad budgets. Facebook is reportedly funding new content productions for its platform in the hopes of seeding an entire ecosystem similar to YouTube. YouTube has proven extremely lucrative for Google, and Facebook wants in on the billions of digital video adverting revenue it generates every year.

Not only are ad budgets shifting from television to digital, Facebook is one of the few companies that's been able to attract those ad dollars thanks to its audience size, engagement, and ad targeting capabilities. As the trend continues through the end of the decade, that makes Facebook an awesome buy.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A and C shares) and Facebook. The Motley Fool has a disclosure policy.

Author

Adam has been writing for The Motley Fool since 2012 covering consumer goods and technology companies. He consumes copious cups of coffee, and he loves alliteration. He spends about as much time thinking about Facebook and Twitter's businesses as he does using their products. For some lighthearted stock commentary and occasional St. Louis Cardinals mania ... Follow @admlvy